Sellathamby (Re), 2020 BCSC 1567

July 01, 2021

Can a notice of disallowance be declared a nullity following the expiry of the appeal period?

The applicant creditor sought an order for, among other things, a declaration that the Notice of Disallowance of his Proof of Claim issued in December 2017 was a nullity and of no force or effect, and that the Notice of Disallowance be vacated. He argued that the proposal trustee did not value his claim nor decide it in a timely manner, thus preventing the applicant from exercising his rights under the consumer proposal. The applicant argued that the Notice of Disallowance issued in 2017 was a nullity because the trustee was discharged from his duties as a trustee at the time and, consequently, did not have the authority to issue the notice.

The respondent debtor argued that the applicant should not be permitted to challenge the Notice of Disallowance in this forum. According to the respondent, the applicant had an opportunity to appeal the Notice of Disallowance, but missed the deadline of which he was clearly aware. Consequently, it would be an abuse of process to allow the applicant to circumvent the deadline by seeking relief in this manner.

The respondent filed a Notice of Intention to Make a proposal in December 2015. The applicant filed his Proof of Claim in January 2016. Some time after that, a meeting of the creditors was held and they voted in favour of the consumer proposal. The applicant argued that he had no notice of this meeting and did not attend. In September 2016, the trustee certified that the consumer proposal was fully performed and obtained a discharge from his duties in December 2016. Then, in December 2017, a Notice of Disallowance was sent to the applicant.

Though there was a belief within the trustee’s office that the Notice of Disallowance had been sent in February 2016, the Court accepted that the Notice was not provided to the applicant until December 2017. Providing the Notice of Disallowance one year after the trustee was discharged and almost two years from the applicant’s Proof of Claim was not a timely discharge of the trustee’s duties.

While a trustee may perform duties incidental to the full administration of the estate after his discharge, issuing a Notice of Disallowance to a creditor after the consumer proposal was fully performed was not an incidental duty or otherwise tying up loose ends. By that time, the creditors’ meeting was completed and the proposal had been voted on without the applicant having been able to participate and exercise his rights as a creditor. He could not speak on the proposal because he did not know about it, and he could not vote at the meeting of the creditors because he did not know about the meeting. Accordingly, the Court held that the trustee’s Notice of Disallowance in December 2017 was made without any legal force or effect. The Court agreed with the applicant creditor that the Notice was a nullity.

Section 135(4) states that a right to appeal is available for a “determination under subsection (1.1) or a disallowance referred to in subsection (2).” In this case, there was no determination of a provable claim or disallowance of a claim because the authority of the trustee to make those decisions had ended some time after his discharge (and they were not incidental issues). As the trustee’s decision in December 2017 was a nullity, the applicant was not limited to his right of appeal under the BIA to challenge that decision.

The application was allowed.

Judge: Justice Steeves

Counsel: Steven Dvorak of Davidson Lawyers for the applicant David Lofthaug; Cody Reedman of Reedman Law for Vireindra Christopher Sellathamby